Homer Alaska - Business

Workers' compensation insurance premiums that employers pay are likely to increase modestly in 2012 after several years of decline, state Division of Insurance officials say.

State law requires employers to purchase insurance to cover employees for possible workplace injuries.

State Insurance Director Linda Hall said insurers have filed for a 2.7 percent overall rate increase, which the division is now considering. If it is approved, and the decision that will be made in early November, the increase will go into effect Jan. 1, Hall said.

In 2010, Alaska had the nation's second-highest workers' compensation insurance premiums at about 150 percent of the national average, below Montana, which was at 160 percent. Alaska was No. 1 in premium costs in 2009. North Dakota had the nation's lowest workers' compensation premiums, at 50 percent of the national average.

Hall couldn't say what caused the reversal of the long-term trend of declining premiums in Alaska, but rising medical costs could be one explanation. In reports submitted to the Division of Insurance that accompanied the request for a rate increase, insurers said they are estimating that medical costs for treating injured workers will be up 3.5 percent in 2012.

The estimate is based on a three-year trend of actual costs between 2007 and 2009 and an estimate of the trend through 2010 and 2011. Actual medical costs for 2010 are not yet available.

"We're down dramatically in the number of reported lost-time incidents and this has been the major factor in why insurance costs have declined, particularly in the last five years," Hall said.

The number of accidents, the severity of injuries and the actual medical costs are the major factors in workers' compensation insurance costs. A major hike in workers' compensation in 2004 and 2005 focused employers' attention on safety and was a major cause of increased emphasis on reducing accidents, Hall said.

In another development related to workers' compensation, Hall said the division has just signed a new rate schedule for approved medical costs. The schedule, which will reimburse medical providers typically at 90 percent of their request, was approved by the state Legislature earlier this year.

The rate schedule lists a number of medical procedures and the costs at which medical providers will be reimbursed. Hall said the previous schedule had been adopted in 2004, and has been increased with the annual Consumer Price Index, but the most important change is that a number of medical procedures that were not used in 2004 are now in the schedule.

This is important because if the procedure is not listed, the medical providers are compensated at 100 percent of their request. Now that the new procedures are in the schedule, reimbursements will be at approximately the 90 percent level, Hall said.

Overall, the new reimbursement schedule is not expected to have a significant effect either way on workers' compensation costs, she said.